Home / Archive / Offices Go for the Green
Thursday, May 17, 2012
Special Report: April 2009
Offices Go for the Green
Property managers find benefits in ecofriendly building operations
Story by Joanna Corman
The co-owners of 300 Capitol Mall in Sacramento bought the 18-story high-rise in 2007 with the intent of turning it into one of the greenest buildings in the region. They believe a nod of approval from the U.S. Green Building Council — a Washington-based nonprofit — touting a healthy workplace and resource conservation, would encourage lease renewals and lower operating costs.
“It’s just a good way to do business,” says Lisa Fitzgerald, general property manager for Hines, which shares ownership with Sterling American Property Inc. “I think we feel like we have a responsibility to make it as comfortable and as effective as we possibly can.”
The building is one of a small number of privately owned office buildings in the Capital Region registered for the Leadership in Energy and Environmental Design’s program for existing buildings, a set of national green building standards developed by the Green Building Council. Also known in the industry as LEED-EB, the five-year-old standards rate commercial and high-rise residential buildings on a four-pronged scale, focusing on improving operations and maintenance to make buildings run the best they can. That could mean switching janitorial service from night to day, increasing tenants’ recycling, buying ecofriendly products or installing aerators on sink faucets, for example. The certification must be renewed every five years.
Locally, industry experts say office owners are considering — and in some cases making — buildings more sustainable through retrofits or operational changes. The trend is just beginning, experts say, and marks a change in building management. Some owners are using LEED because it goes beyond mere energy efficiency, and it also requires a third-party verification system.
The other standard is Energy Star, a federally backed program that focuses solely on energy conservation. The state, one of the region’s largest renters of office space, has made clear it prefers occupying LEED-certified buildings, which some building industry experts say could encourage private owners to green their investments.
“Some believe that Class-A office space, at some point, will really need to be LEED-certified if people want to lease it,” says Renner Johnston, an architect with Mogavero Notestine Associates who is shepherding his firm’s Sacramento headquarters through LEED-EB. “It’s not hard to imagine that those are the kind of buildings that are going to be leased first.”
Greening a building has many benefits, according to experts, including lower operating costs, which allows owners to recoup initial investments. It creates a healthy work environment and can increase productivity, experts say. It also can help retain tenants and attract new ones at a time when a growing number of companies are looking to rent sustainable office space. “By 2009, 82 percent of corporate America is expected to be greening at least 16 percent of their real estate portfolios,” according to a 2007 McGraw-Hill Construction report on the Green Building Council’s website.
“Some believe that Class-A office space at some point will really need to be LEED-certified if people want to lease it.”
— Renner Johnston, architect, Mogavero Notestine Associates
For some building owners, the down economy makes doing any green retrofits impossible. Ron Thomas, senior vice president with Colliers International in Sacramento, says a lot of his clients are exploring the possibility of greening their buildings, but few have taken action. In a soft market, tenants are looking for cheaper deals, and retrofitting can be so expensive that owners may not be able to make up the cost in rent in the short term because demand for green space is low, he says.
Office building owners have an opportunity to make a significant impact on the planet, says Marc Heisterkamp, the Green Building Council’s director of commercial real estate. According to Energy Star, the nation’s 4.8 million commercial buildings generate 17 percent of greenhouse gas emissions. “If we’re truly trying to make an impact on any environmental issues, … we need to create a fundamental change in the way we operate and manage our buildings,” Heisterkamp says.
In the Sacramento area, 53 buildings were publicly registered with the LEED-EB program in late January. Of those, 36 are state-owned, 13 are privately owned and four are owned by local governments, according to the Green Building Council. Five are certified. Nationwide, nearly 2,300 buildings had been registered existing as of early February, and 120 had been certified.
LEED for existing buildings hasn’t taken off yet in Sacramento, says Craig Sheehy, president and CEO of Folsom-based Envision Realty Services LLC, which guides building owners through the LEED process. In February, Sheehy’s company was helping more than 60 office buildings nationwide through the LEED process, but none in the Sacramento area though he had bid on a handful of local office buildings.
Sheehy says a slow economy is scaring some of his clients into making their properties as healthy and efficient as possible. In a down market, Sheehy says a Green Building Council certification can make a difference in retaining or attracting tenants. “I think that LEED is going to be the differentiator,” says Sheehy, who is vice chair of Gov. Arnold Schwarzenegger’s Real Estate Industry Leadership Council.
Sheehy says it’s relatively easy and inexpensive to green a well-run Class-A office building. His buildings, which average 20 to 25 years in age, average 21 cents per foot in green costs and 15 cents per foot in savings. That equals a payback in roughly 1.6 years, including LEED fees, his services and retrofits.
When Hines and Sterling bought 300 Capitol Mall two years ago, they were committed to greening their buildings. With the state occupying 80 percent of the building and giving preference to green office space, pursuing LEED certification made sense. Although no tenants have had lease proposals requesting LEED-certified office space, the owners want to be ready, Fitzgerald says.
The 383,238-square-foot Class-A office building has an Energy Star rating in the low 90s out of 100, making it a good LEED-EB candidate, says Fitzgerald, who foresees making only minor changes to the building to improve its efficiency. The building is undergoing an energy audit, which will identify about $50,000 in projects that would reduce annual energy consumption with a maximum 12-month payback. Last year, the company eliminated toxic chemicals from its cleaning service and offered a voluntary day janitorial program, which saves money on electricity. Other changes include replacing spray sprinklers with drip irrigation and installing water-efficient mechanisms on toilets and faucets. The changes are expected to cost roughly $125,000, including LEED fees. With $55,000 to $60,000 in annual operational savings, the owners could recoup their investment within two years.
The building, along with three others in the Sacramento area, is serving as a LEED-EB test case for Hines’ holdings in the region, Fitzgerald says. The goal is not to seek LEED certification for each building portfolio-wide. “What we’re committed to is doing things in a more sustainable way,” she says.
John Mourier, a developer who built 915 Highland Pointe in Roseville, a four-year-old Class-A office building, is pursuing LEED-EB certification. A growing number of large corporations are looking for LEED-certified office space, says Chris Lemmon, a Cornish and Carey Commercial associate who represents the property. Mourier hopes the designation will win over high-end tenants, Lemmon says.
In January, 53 buildings in the Sacramento area were publicly registered with the Leadership in Energy and Environmental Design program for existing buildings.
— U.S. Green Building Council
Malinda Neubert, a CB Richard Ellis property manager for 980 9th St. in Sacramento, is helping the property owner, TIAA-CREF, green the 25-story high-rise through the LEED-EB process. She says the owner and CBRE wanted to make the building as efficient and ecofriendly as possible.
CBRE is taking a company-wide approach to greening the office buildings it manages. Last year it unveiled a list of 12 green practices required of its managed properties, such as developing recycling programs and using green cleaning products. It’s registering buildings with Energy Star and LEED-EB, and it also developed a checklist of free or inexpensive measures that would recoup their investment within a year, including eliminating automatic Saturday hours and installing motion sensors on lights, says Dave Pogue, CBRE’s national director of sustainability in San Jose.
The owner of 980 9th St. spent between $250,000 and $350,000 last year on energy- and water-saving changes, including a lighting retrofit and mechanical upgrades. The estimated payback is four years. The main driving force was economics, Neubert says. “It pays for itself. It doesn’t make sense not to.”
Other locals are also making their buildings as green as possible. The League of California Cities is investing more than $6 million in a green remodel of its Sacramento headquarters. An additional $130,000 will pay for changes that will help the building achieve a gold LEED new construction certification, says Dan Harrison, league director of administrative services.
VSP Vision Care received a LEED-EB platinum certification in August on one of its buildings in Rancho Cordova. The only renovating it did involved installing low-flow toilets, says Steve Hibbs, director of corporate services. The $450,000 project helped fine-tune its operations, reducing water consumption by 50 percent, energy use by 27 percent and waste by 70 percent. Hibbs estimates VSP will recoup its investment in less than five years.
Several real estate and building professionals say the state’s requirements for leased space will encourage private sector building owners to green their properties to retain or secure the state as a tenant. In 2004, Schwarzenegger issued an executive order saying the state prefers that leased office space of at least 5,000 square feet has a minimum Energy Star rating of 75. The Department of General Services has since developed a policy for build-to-suit leases, requiring them to have a minimum LEED silver rating. Last year, the state told building owners it prefers leasing LEED-certified office space, says Roy McBrayer, deputy to the state architect and program manager forthe state’s green building initiative.
This winter the state was developing a green leasing pilot program to help determine how to share costs if it were to ask a landlord for green improvements or pursue LEED certification for an existing building.
Iris Andre, CBRE managing director in Roseville, says she hasn’t yet seen a LEED-certification or Energy Star rating help the investors her company represents to lease out space in the Sacramento area. “Here in this market, it’s not bridged that gap,” Andre says. “In other markets it has. I think it will start to make an impact. I can’t tell you whether it’s a year or two years from now, but it’s probably on the cusp of making a change in how people look at a building.”
While the Sacramento area is just beginning to green its office buildings, Andre doesn’t call it a short-lived trend. “This is a life-changing way of how we’re doing business.”
photographer Jill Wagner
